1. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Employees who customarily and regularly provide the service upon which the charge is based--Includes, but is not limited to, waiters, waitresses, busboys, service bartenders, wine stewards, and maitre d' hotel but excludes janitorial help, chefs, cashiers, and dishwashers.
   2. (2) Mandatory gratuity charge--Any amount required by the seller for the service of meals and food products including soft drinks and candy for immediate consumption.
   3. (3) Reasonable mandatory gratuity charge--Mandatory gratuity charges which do not exceed 20% of the sales price.
   4. (4) Voluntary gratuity--A tip added to the bill at the suggestion of the purchaser or money given freely by the purchaser over and above the sales price.
2. (b) Voluntary gratuities. Voluntary gratuities are specifically excluded from the sales price of taxable items.

3. (c) Mandatory gratuity charges.

   1. (1) Reasonable mandatory gratuity charges are specifically excluded from the sales price of taxable items.

   2. (2) The mandatory gratuity charge must be:

      1. (A) separated from the sales price of the meal or food product served for immediate consumption;
      2. (B) identified as a tip or gratuity; and
      3. (C) the full amount of the mandatory gratuity charge must be disbursed to employees who customarily and regularly provide the service upon which the charge is based. If any portion is retained by the employer, the entire gratuity will be subject to sales tax.

4. (d) Records. The retailer must maintain records which demonstrate that the full amount collected as mandatory gratuity charges has been disbursed to qualified employees. In order to comply with this requirement, the records must show:

   1. (1) all mandatory gratuity charges collected from customers and the corresponding disbursements to each qualified employee; or
   2. (2) that the total direct compensation due all qualified employees during each sales and use tax reporting period equals or exceeds the total amount collected as mandatory gratuity charges during the same period.

Source Note:The provisions of this §3.337 adopted to be effective January 1, 1976; amended to be effective September 8, 1977, 2 TexReg 3194; amended to be effective March 28, 1980, 5 TexReg 973.